As we checked in the previous blog post, gold ETFs are very much similar to a diversified mutual fund plan. Instead of investing the corpus in equity, the money is invested in gold. We learnt about gold ETF schemes on offer from UTI, Quantum, SBI mutual fund, Kotak and Reliance.
Just to elaborate and simplify the concept further, ETFs are essentially mutual funds that are listed on the stock exchange. Here, the underlying core asset is standard gold bullion. You can use this instrument to buy gold bullion on someone else’s behalf, and present a meaningful gift. Corporates can consider gifting them to their employees as well.
Let us check the various features of gold ETFs and how they are managed:
• As for denomination, one can buy even one gram at a time. With Quantum, you can purchase half-a-gram at one time.
• When one wants to sell back the gold in physical form, the making charges of jewelry are wasted as they cannot be recovered. In fact, the gold in physical form is mostly sold at a discount to its original price owing to depreciation. Coins and bars suffer from similar issues. On the other hand, units of gold ETFs can be sold by either with a few clicks in case you have an online trading account or by a call to your broker.
• Tax benefits is one major advantage of gifting gold in the electronic form. It’s free of wealth tax. It attracts just 10% long-term capital gains tax as against 20% in case of physical gold.
• Again, there is absolutely no doubt on the count of purity because impurity risk is non-existent with gold ETF. This can be an issue with the gold in physical form
• Security is of course taken care of by the fund, unlike in the case of jewelry or other forms of physical gold where the threat of theft always looms.
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